Legitimate debt management services in Ontario are generally offered through two types of professionals:
- members of accredited credit counselling agencies, and
- federally licensed bankruptcy trustees.
Both offer credit counselling services however the plan they offer differs significantly. Which program you choose depends on how much you owe and how much you can afford to repay.
A Debt Management Plan
A debt management plan (or DMP) is a service provided by member agencies of the Ontario Association of Credit Counsellors. They are non-profit agencies created to help individuals experiencing financial problems.
Not-for-profit credit counsellors offer two primary services.
Budgeting support to help you find ways to reduce expenses to bring your budget back into balance and a debt management plan which is a program to repay 100% of what you over an agreed period of time.
In a debt management plan your credit counsellor will contact your creditors (the people you owe money to) and work out a repayment plan. Once the debt management plan is accepted by your creditors, you make the agreed upon payment to your credit counsellor each month, and they disburse the money to each of your creditors.
Debt management plans are best suited to persons with a limited number of creditors (5 or less) and under $15,000 in debts, although they can be used for larger debts. The advantages of a debt management plan are:
- Maximum period to repay is five years;
- Interest relief may be possible (in many cases all future interest is eliminated); and
- You make one monthly payment.
A debt management plan is not a legal procedure – it is a voluntary agreement between you and your creditors. As a result, a debt management plan does not need to include all of your creditors; in theory you could exclude a creditor if you wanted to.
A DMP is not it binding on your creditors. It does not have the ability to automatically stop a garnishment order – the creditor must agree to lift the garnishment.
Because a debt management plan is not binding on all creditors (unless each one accepts the plan), if one creditor does not accept the plan, the entire plan may fail. In that case you may need a more formal arrangement filed through a bankruptcy trustee.
A Formal Consumer Debt Proposal
Trustees in bankruptcy in Ontario can also negotiate to settle your debts with your creditors through a legal process called a consumer proposal. Like a debt management plan, you make one monthly payment over a period of no more than five years.
The advantages of a consumer proposal are:
- It is binding on all creditors once approved;
- You repay only a portion of what you owe;
- It stops wage garnishments and other legal action; and
- More debts can be included such as debts owing to Canada Revenue Agency.
A consumer proposal may be a better option for you if you cannot afford to repay your debts in full, have many creditors or need immediate protection from a wage garnishment or other legal action.
To find out what option is best for you, contact an Ontario trustee in bankruptcy for professional advice.